PFS What's new bulletin March 2023

Damages claim for 13-year-old IHT advice is not time-barred, EWHC rules
(AF1, JO2, RO3) 

England and Wales High Court (EWHC) has ruled that a damages claim for negligent tax advice given by a law firm in September 2009 is not time-barred and can proceed.

The case 

Stephen Etroy set up a Jersey interest in possession trust in 2002 with assets worth more than £1 million. Being non-UK domiciled, an excluded property trust was used for inheritance tax (IHT) purposes and trust and company services provider RBC Trust Company (Jersey) Ltd were used. 

However, Finance Act 2006 significantly changed the tax regime for trusts and, by 2009, non-doms were expected to be brought further within the UK tax regime. Etroy therefore sought advice from Speechly Bircham on the creation of a new discretionary trust, into which his interests could be transferred during the time he was still non-UK domiciled. This would avoid his interests in possession under the Jersey trust terminating if he became deemed-UK-domiciled and, therefore, subject to IHT at 40% on his or his wife's death. 

Etroy followed Speechly Bircham's advice and the assets held within the Jersey trust were transferred to a new discretionary trust governed by the law of the Cayman Islands, with RBC as the trustee. 

However, the advice was flawed, because it failed to take into account that the Jersey trust held UK-situs assets that would attract IHT charges. In due course, when Etroy and RBC consulted their tax accountants, they discovered that this had resulted in a tax liability of over £1 million. 

Outcome 

A claim was made in 2021 due to the time taken by the accountants to investigate the issue. The law firm stated that it was time-barred due to the six-year time-bar rule. However, the judge has now upheld the claim. She concluded that it was not until September 2018 that Etroy had sufficient knowledge of the damage attributable to the negligent advice, as this was the first time that his accountants firmly indicated that there was likely to be a significant IHT charge attributable to the advice. She accordingly ruled that the claim was not out of time and could go ahead.

Comment 

It was clear that Stephen Etroy could not reasonably have been expected to have acquired the knowledge required for bringing an action for damages in respect of the damage alleged prior to 28 September 2018. 

CGT on UK property - new access to paper returns
(AF1, RO3) 

When a taxpayer is completing a self-assessment return and realises that they should have submitted a ‘CGT on UK property return’ during the tax year (60 days from the date of completion), they should submit a ‘CGT on UK property return’ before submitting the self-assessment return. 

If the taxpayer has already submitted a self-assessment return, they cannot use the digital service to report the gain and must do so by completing a paper ‘CGT on UK property return’.

In December, HMRC published details of improvements to the ‘CGT on UK property paper return’. HMRC has now also provided direct access to the forms for use in cases where the normal digital process is not suitable. 

This means that agents and taxpayers who are unable to use the online service to report relevant property disposals, will be able to download a paper version of the form. Until now, it has been necessary to ring HMRC to request a paper form. This has caused problems for taxpayers and agents firstly because of the wait times on HMRC’s helplines, and secondly because of the time taken for forms to arrive via post. 

However, it should be noted that the online service is still HMRC’s preferred route for reporting. As noted in HMRC’s letter to the Association of Taxation Technicians regarding the availability of the paper form: 

“HMRC consider that the existing online service is the most secure and efficient way to notify HMRC of a residential property disposal and pay the CGT that is due. Consequently, the form is being made available to download on a trial basis. This trial will allow us to make sure that the service is properly designed and to ensure that customers are only using the paper form when they can’t use the existing digital route.” 

According to HMRC’s CGT manuals, the following taxpayers are permitted to use a paper form. 

• Digitally excluded taxpayers or those unable to pass HMRC’s online verification process.
• An agent who has been engaged only to deal with a return.
• A personal representative who wants to authorise a different agent to deal with the deceased estate to the one who deals with their individual tax affairs.
• A personal representative who wants to amend a return which has already been sent online.
• A Capacitor (such as Power of Attorney) who wants to authorise an agent to file, the UK property return.
• A Capacitor who wants to amend a return which has already been sent online.
• A corporate trustee.
• A non-resident trustee who needs to report the disposal of UK property or land but doesn’t have any non-resident CGT liability to pay.
• A secure or Public Department 1 customer who doesn’t file returns online with HMRC.
• A person that has already submitted a self-assessment return prior to the UK property return. 

Legal age of marriage in England and Wales rises to 18
(AF1, JO2, RO3)

The Marriage and Civil Partnership (Minimum Age) Act 2022, which gained Royal Assent in April last year, came into force on 27 February. It means that 16 and 17 year olds will no longer be allowed to marry or enter a civil partnership, even if they have parental consent.  

It is now illegal and a criminal offence to exploit vulnerable children by arranging for them to marry, under any circumstances whether or not force is used. Those found guilty of arranging child marriages face sentences of up to seven years in prison.

The change was introduced through a Private Member’s Bill brought to Parliament by Pauline Latham OBE MP and was supported by campaign organisations within the Girls Not Brides Coalition, which work to end child marriage and ‘honour’-based abuse. 

The change honours the Government’s commitment to the pledge made to the United Nations to end child marriage by 2030. Previously, forced marriage was only an offence if the person uses a type of coercion, for example threats, to cause someone to marry. 

It is now an offence to cause a child under the age of 18 to enter a marriage in any circumstances, without the need to prove that a form of coercion was used. This includes non-legally binding ‘traditional’ ceremonies which would still be viewed as marriages by the parties and their families. 

Note that the Act does not change the age of marriage in Scotland or Northern Ireland as marriage is a devolved matter. 

The Government’s statutory guidance and multi-agency practice guidelines on forced marriage have also been updated to reflect this legislation, and are available at The right to choose: government guidance on forced marriage. 

INVESTMENT PLANNING

Yields pick up
(AF4, FA7, LP2, RO2)

After a start to the year which saw global bond yields fall, they have returned again to around the highs of last November.

At the start of 2023, markets were expecting that, later in the year, there would be interest rate cuts from the major central banks (other than Japan, which for now is a law unto itself). As the graphs show, across January, Government bond yields (dashed lines) in the UK, Germany and the USA fell from the end 2022 levels ((dotted lines) at all but the shortest durations. For example, ten-year yields declined by 0.37% in the USA, 0.34% in the UK and 0.28% in Germany. 

February saw a change of tack, as inflation and employment data were stronger than anticipated. The markets read that information as an indicator that the interest rate medicine being administered by the central banks was not working as they had hoped. The dosage would have to be increased and the course of treatment extended. 

For example, the flash Eurozone inflation figure for February showed inflation running at 8.5%, down just 0.1% from the previous month and 0.3% above the Reuters consensus forecast. Eurozone core inflation (stripping out energy and food) rose 0.3% to 5.6%. 

The central bankers’ focus is often on core inflation because there is very little they can do to influence energy and food prices. Sticky core inflation numbers (4.7% in the USA on the Fed’s favourite measure and 5.8% in the UK) will be the factor to watch in the months ahead. The broader CPI inflation indices are set to fall, thanks to energy price base effects – the surges of last year are not expected to be replacated in 2023. 

In the UK, the Bank of England faces an increasingly difficult balancing act. The latest earnings figures (for October-December 2022) show regular pay (excluding bonuses) rising by 6.7% a year while economic growth over the same period was 0.0% and unemployment close to historic lows, at 3.7%. The markets are reading that mix as implying more rate increases to push down earnings growth and increase unemployment. In a speech at the start of March, Andrew Baily, the Bank’s governor, pushed back against that view, saying: 

“I would caution against suggesting either that we are done with increasing Bank Rate, or that we will inevitably need to do more. Some further increase in Bank Rate may turn out to be appropriate, but nothing is decided. The incoming data will add to the overall picture of the economy and the outlook for inflation, and that will inform our policy decisions.” 

Central bankers have given up ‘forward guidance’ in favour of ‘data dependence’. Some commentators read the switch as implying the central bankers do not know what will happen next or, at least, have learned the lessons of the past misguidance. 

Comment 

The Bank of England makes an interest rate announcement on March 23, eight days after the Federal Reserve reveals its next move and the Chancellor presents his Budget.

Access to small savings accounts for those who lack capacity - an update
(AF4, FA5, FA7, LP2, RO2)

The Ministry of Justice consulted on the plan in 2021/22, mainly due to parents' difficulties in accessing child trust funds (CTFs) held by banks in the name of children who had turned 18 but lacked capacity. 

The same issues also affect anyone who cares for someone who lacks mental capacity and may require access to small amounts of money to support the specific needs of that person. 

The current system requires a family member or guardian to apply to the England and Wales Court of Protection (EWCOP) to manage such funds, but obtaining the required form of legal authority under the MCA 2005 can be disproportionately costly and lengthy, considering the small amounts of money usually involved. At the time of the consultation, the process took over 20 weeks and cost £371 in fees. 

The Ministry's proposal was to allow withdrawals and payments of up to £2,500 from cash-based accounts, such as a CTF or Junior ISA, without needing the EWCOP’s permission. 

Although most of the consultation's responses supported the idea, it did not reach a consensus on how to achieve it. Some respondents stressed the importance of maintaining the principle that adults must obtain proper legal authority to access or deal with the property belonging to another adult and suggested that the proposed safeguards against abuse, fraud and coercion were insufficient.

Others pointed out that many people did not understand the need to have legal authority to access funds for the people they care for and parents were not adequately informed about the steps they must take to make decisions on their child's behalf when they reach adulthood. 

The Ministry of Justice has now concluded that this lack of understanding is the root cause preventing people from accessing funds on behalf of another individual.

Instead of amending the MCA 2005 by adding a small payments scheme, it intends to encourage the EWCOP to improve the application process through digital access. The Ministry will also try to raise awareness among parents and other carers through their engagement with the DWP, special educational needs and disabilities schools, social workers and banks. 

PENSIONS 

Pension Schemes Newsletter 147 – February 2023

(AF8, FA2, JO5, RO4)

Pension Schemes Newsletter 147 covers the following: 

• Relief at Source
• Public service pensions remedy
• Accounting for Tax (AFT) Returns 

Areas of interest 

Public service pension remedy – regulations 

The regulations setting out the changes to the pension tax treatment aiming to smoothly implement the McCloud remedy have been made and laid.  

Changes to Accounting for Tax 

Changes to pension scheme’s Accounting for Tax returns are also being made to account for the McCloud remedy.  These cover both annual allowance and lifetime allowance charges which may occur as a result of the implementation of the remedy. 

The rules will allow any members who incur an annual allowance charge due to the remedy to use mandatory scheme pays for the relevant tax year.  The updates add new questions to the Account for Tax return to allow for this situation and ensure the schemes can report accurately them. 

Similar amendments are being made to cover the situation where members may be subject to an increased lifetime allowance charge as a result of the remedy. 

Government back proposals to expand scope of Automatic Enrolment
(AF8, FA2, JO5, RO4) 

The Government has confirmed it will back a Private Members Bill aiming to expand the scope of automatic enrolment. 

The Bill proposes abolishing the Lower Earnings Limit for contributions and reducing the age for being automatically enrolled from 22 to 18. 

The DWP press release states that lowering the age at which workers need to be automatically enrolled will make saving the norm for young adults and able them to save from the start of their working lives. 

It also states that removing the lower earnings limit will help low earners and those with multiple jobs.   

Minister for Pensions, Laura Trott, said: “We know that these widely supported measures will make a meaningful difference to people’s pension saving over the years ahead. Doing this will see the government deliver on our commitment to help grow the economy and support the hard-working people of this country, particularly groups such as women, young people and lower earners who have historically found it harder to save for retirement.” 

The press release points out that the provisions in this Bill will not result in any immediate change but will give the Secretary of State powers to amend the age limit and lower qualifying earnings limit for Automatic Enrolment. Any changes will be subject consultation before implementation. 

DWP: Pensions Dashboard Update
(AF8, FA2, JO5, RO4) 

In a House of Commons Written Statement (HCWS594) Laura Trott MP, Secretary of State for Pensions has announced that the timetable for pensions dashboards will be delayed, and ‘reset’ in the summer. Pension schemes were due to start connecting to Dashboards from 31 August 2023. She stated that: “The first connection deadline is currently 31 August 2023. However, additional time is required to deliver the complex technical solution to enable the connection of pension providers and schemes, in accordance with the connection deadlines set out in the Pensions Dashboards Regulations 2022 and the Financial Conduct Authority’s corresponding pensions dashboard rules for pension providers. 

More time is needed to deliver this complex build, and for the pensions industry to help facilitate the successful connection of a wide range of different IT systems to the dashboards' digital architecture. Given these delays, I have initiated a reset of the Pensions Dashboards Programme in which DWP will play a full role. The new Chair of the Programme Board will develop a new plan for delivery.” 

PDP Principal Chris Curry commented on the delay and said: “Significant progress has already been made. However, we need to do more work to ensure the connection journey is stable and secure for industry, and that it’s achievable ahead of mandatory connection.”

The Dashboard Available Point (DAP); the day when dashboards are to be available to the public, was expected to be late next year. It is not now clear if this timescale will also be pushed back. 

The industry response was somewhat less than enthusiastic as the following Press Releases demonstrate: 

ABI:	Pensions dashboard response
AJ Bell:	Pension Dashboards kicked into the long grass just months before key delivery deadlines
LCP:	Dashboards delay must be kept to an absolute minimum
PASA:	PASA Statement in response to announcement made today by the Pensions Dashboards Programme (PDP)
PLSA:	PLSA comments on pensions dashboards timeframes update

Resolution Foundation calls for a cap on tax free cash
(AF8, FA2, JO5, RO4, AF7) 

Last month the Institute for Fiscal Studies (IFS) published a published a report on the taxation of pensions which proposed for a reduction in the maximum pension commencement lump sum . Now the Resolution Foundation has joined in the cash-cutting call in a new in a new paper, ‘Post pandemic participation’. As the title suggests, the focus is on workforce participation in the wake of the pandemic. The employment rate for 16-64-year-olds is down from 76.6 % in December-February 2020 to 75.6% in the final three months of 2022. 

The report has three key proposals related to pensions, all aimed at encouraging continued labour force participation among older workers: 

1. Minimum pension age. The paper notes that the Government’s emphasis on State Pension Age (SPA) ‘has led to the incoherence of the past decade, with politicians raising the SPA (delaying retirements for those on lower incomes with lower longevity) while proactively making it easier to access tax-relieved private pension wealth (disproportionately held by richer households with longer longevity) earlier.’ To address this, the paper says that ‘Policy makers should consider further raising [the minimum pension] age, or at least slowing the rate at which money can be withdrawn before SPA.’ 

1. Pensions commencement lump sum. In the paper’s view, the pension commencement lump sum ‘encourages early retirements far before the SPA for wealthy individuals, at considerable expense to the taxpayer.’ A cap is proposed, but no numbers are given. 

1. Defined benefit schemes and employment re-entry. Some defined benefit (DB) pension schemes (e.g. the civil service pension scheme for those who were members before April 2015), have ‘abatement’ rules which can result in the pension of a retiree being reduced if they are re-employed. The paper regards this as an active discouragement to returning to employment which should be addressed. 

FCA requests scheme DB and DC scheme administrators/trustees to report “suspicious” transfer activity
(AF8, AF7, FA2, JO5, RO4) 

The FCA has reached out to administrators/trustees of DB and DC occupational pension schemes asking them to report suspicious transfer activity directly to the FCA via four new e-mail addresses depending on the type of transfer and whether or not there is a concern about a scam; pension liberation fraud. What is unusual about this move from the FCA is that they do not regulate occupation DB or DC pension schemes, that is the remit of The Pensions Regulator (TPR). It is not clear the thinking behind the FCA’s move, could it reflect a lack of communication between the FCA and TPR (which in the past has seemed to be pretty close) or is it a bit of a “regulatory land grab”? 

The FCA is requesting that they be informed if the administrators/trustees have concerns in respect of any of the following: 

• individuals who provide unauthorised advice on pension transfers,
• increases in the volume of transfers advised by the same adviser,
• if a member requested a transfer following a cold call or unsolicited contact,
• if the member has been offered an incentive to make a transfer,
• if the scheme has high risk or unregulated investments,
• if the scheme charges are unclear or high,
• if the scheme’s investment structure is unclear, complex or unorthodox,
• potential scam activity. 

The obvious concern will be if there is the potential for there to be a high degree of over-reporting of needless concerns to the FCA. Since the TPR introduced its traffic light system for DB schemes there has been needless red flags raised when, for example, the recommended investment is in a regulated UK collective investing in overseas markets. These could cause a bottle-neck at the FCA. 

Higher annuity rates to be reflected in Statutory Money Purchase Illustrations
(AF8, AF7, FA2, JO5, RO4)

The Financial Report Council (FRC) has set out the assumptions to be used for Statutory Money Purchase Illustrations (SMPIs) for the 2023/24 year, from 1 October 2023. The cost of index-linked annuities for these SMPIs will be around one-third lower than for 2022/23 SMPIs. This is because gilt yields have risen sharply since last year, as confirmed by the publication of the mid-February 2023 gilt yields. As a result, projected pensions in SMPIs with 2023/24 illustration dates will be around 50% higher, all other things being equal. 

Most schemes have, to date, provided illustrations on the basis of a pension which pays 50% to the spouse on the member’s death and that has index-linked increases in payment. Statements issued on or after 1 October 2023, however, will need to assume single life, non-increasing pensions following a change in the rules governing SMPIs. This change alone will approximately halve the annuity costs and almost double the pension illustrated. When this is combined with the change in yields, the annuity costs will be reduced by approximately 65% and the pension illustrated would be approximately 2.8 times higher, all other things being equal. While this may make annuities look attractive to members, it does also reflect changes in inflation and interest rate expectations that affect the value they offer. 

Providers and trustees should consider this impact and how best to convey the changes that affect their members. They may also wish to consider supplementing the SMPI with additional information: 

• Explaining that in most cases individuals will have various options at retirement, not just an annuity. Indeed, providers may wish to consider changing the form of benefit illustrated in their SMPIs to reflect more closely how members use their funds in retirement.
• Depending on the illustration date, members’ funds may have been impacted by the volatility in the bond markets since last year: this could also have a significant, offsetting, impact on the projected pension.